A Closer Look at Google’s Fourth Quarter Numbers

One of the biggest surprises from last week’s barrage of fourth quarter earnings reports was Google Inc.’s (NASDAQ:GOOG) miss. It was a big miss and now that the dust has settled the question remains, what happened?

Many analysts have blamed it on high expectations but a closer look exposes more. In an analysis by Business Intelligence, it looks at two concerns from Google’s fourth quarter and their impact on the company’s future.

Google’s core search business slowed more sharply than expected

While Google’s display business grew quicker than expected, its core search business had weaker numbers. This decline came from mobile usage and its affect of click prices and in the U.S., foreign exchange rates was a culprit.

Overall, Google’s business didn’t grow as fast in the fourth quarter: 33 percent in the third quarter vs. the fourth quarter’s 25 percent. A lot of this came from international numbers declining to 28 percent in the fourth quarter from the third quarter’s 41 percent.

The U.S. participated in the slow down too. Its fourth quarter dropped to 23 percent vs. third quarter’s 26 percent.

Why did this happen? It’s the Amazon (NASDAQ:AMZN) factor.

On an anecdotal front, Amazon is beginning to see its revenue impacted by product searches. This was once a vital producer for Google’s growth and from two aspects of Amazon’s product search it could keep Google on its toes.

Amazon’s wide-ranging product selection has customers coming to them first for a product search than Google. So much for saying, “Google it.” Consumers may soon say, “Amazon it.”

A second advantage is Amazon’s …

product search pages now sell third-party product-keyword ads, according to Business Intelligence. These ads may be taking spending away from Google. Again, customers could come here before Google.

Mobile search is less profitable than a standard PC-based search

Other than location-aware local commerce searches, the majority of mobile searches do not have searchers seeing additional spending, it just moves their actions from a PC to a mobile device. And currently, mobile search distribution costs more than PC-based distribution.

So how does this affect Google?

Many analysts believe mobile searches will provide revenue growth for Google but keep in mind this remote searching doesn’t mean consumers purchase more items. They just have more access to Google.

Many of the mobile searches are not commerce related and they are not unique searches done only a mobile phone; they could have been done on the PC as well. Google sees revenue from the return on investment by Google’s advertisers, not by the number of clicks. It’s the old quality vs. quantity issue: search as much as you want but it comes down to how much money is spent by Google searchers.

While Google missed estimates in the fourth quarter, overall the company is doing well. It continues to grow at more than 20 percent each year. Employees are happy working at the company and many will hope last quarter was just a blip for the company.